This week, all eyes will be on the highly anticipated FOMC September meeting. While it appears highly likely that the Fed will keep interest rates unchanged, the upcoming meeting might hold unexpected surprises. What other critical signals could potentially steer the market's course in the months ahead?

FOMC meeting key watch: a no-surprise pause

The Federal Open Market Committee (FOMC), tasked with formulating monetary policy for the world's largest economy, will be in the spotlight on September 20th as they decide their next move in their year-long journey to combat inflation through a restrictive monetary policy framework.

In recent speeches, Federal Reserve officials have clearly expressed their preference for maintaining the current interest rate during this meeting. They emphasize the significance of assessing the delayed impact of the 11 previous rate hikes on the economy before bringing in any further interest rate increases. As decision day approaches, the market has priced in the expectation of a pause this month with a 98% chance.

FOMC meeting key watch: next rate hike?

However, concerns regarding inflation continue to linger, and the sustained economic strength suggests that the Fed is more likely to reiterate its hawkish stance in the Septmber meeting.

In August, inflation once again picked up pace, with the Consumer Price Index rising by 3.7% year-on-year, marking a significant rebound from 3.1% in July. This surge was primarily attributed to increasing gasoline and housing prices. Additionally, producer prices also accelerated, reaching their highest level since June 2022.

Consequently, it appears that the US central bank won’t be ready to declare a "peak rate" anytime soon. In fact, the Fed appears to be leaning towards maintaining flexibility for additional rate hikes. Currently, the market is predicting a one-third probability of the Fed raising rates by another 25 basis points in November's meeting. The message conveyed during this week's FOMC meeting will undoubtedly play a pivotal role in reshaping that probability.

FOMC meeting key watch: is a soft landing guaranteed?

Another pivotal aspect to monitor closely during this meeting will be the Federal Reserve's forthcoming update of its economic projections, including the well-known dot plot, which outlines the expected interest rate trajectory.

In the June’s meeting, the Fed indicated a primary expectation of the interest rate peaking at 5.6% this year. Any adjustment to this projection will be interpreted as a strong signal regarding the Fed's next course of action.

Additionally, the central bank's perspective on economic growth, unemployment rates, and inflation rates over the next 12-18 months will provide further insights into the prevailing and highly debated question: Can the US navigate its way past a hard landing if interest rates are projected to stay higher for longer?

USD dollar

The USD has demonstrated a consistent upward trend over the past two months, appreciating by more than 5%. Based on the daily chart, the US dollar seems to have comfortably followed an ascending path toward the March high, recently surpassing the 104 mark. In the short term, a significant resistance level is noticeable at 105.4. Conversely, on the downside, a support confluence is formed by an ascending trendline and the 20-day moving average (MA), providing crucial support at the 104.20 level.